An electronic payment service provider is an entity that provides the electronic commerce service of completing payment on behalf of a user of the electronic payment service of that service provider. The user on whose behalf a payment is completed is a payor, and an entity receiving the payment (often a biller) is a payee. An enrolled user of service provider is known as a subscriber of the service provider. A subscriber can be an individual, a business, or another type of organization.
A service provider receives a payment request electronically, either directly from subscriber, or from another entity acting on behalf of a subscriber. A payment request, at a minimum, specifies a payee, a payment amount, and a payment date. A payment request may be electronically originated at any one of several electronic user interfaces, including automated telephone system interfaces, Web-based interfaces, PC application-based interfaces, set-top box-based interfaces, ATM-based interfaces, PDA-based interfaces, and mobile phone-based interfaces. A payment request may also be originated by a server system on behalf of a payor.
After receipt of a payment request, a service provider processes the request to initiate payment processing. At the conclusion of payment processing the service provider issues remittance to the payee. Remittance is a combination of a credit to a payee and remittance advice associated with the credit.
A credit accomplishes a transfer of funds to a payee to fulfill a payment request. A credit may be performed through a paper process (check or draft), or an electronic funds transfer (EFT) process. The funds may come directly from a demand deposit account (DDA) associated with a subscriber, e.g., via a draft, or from a demand deposit account associated with the payment service provider. A demand deposit account could be a checking account, a money market account, or any other type financial account in which an account holder can access funds held therein at will. An electronic funds transfer is the process of causing funds to move between different financial accounts, perhaps at the same, or different financial institutions, across one or more networks. A financial institution (FI) is an entity that maintains financial accounts that can be debited and/or credited as a result of transaction activity. Financial institutions include banks, savings and loans, credit unions, and brokerage houses. Networks linking financial institutions, as well as other entities, include the Federal Reserve's Automated Clearinghouse (ACH) network.
The Federal Reserve System is the central bank of the United States of America, formed by an act of Congress. It consists of twelve Reserve Banks located in major cities throughout the United States. The ACH network electronically links the Federal Reserve Banks with financial institutions throughout the United States to support electronic funds transfer between the financial institutions. MasterCard's RPPS network, Visa's ePay network, and Princeton eCom's network are examples of remittance networks, each of which links a service provider with one or more payees.
Remittance advice is a description of a credit that allows proper payment posting to a specific account, or sub-account, in a payee's Accounts Receivable ledger. Remittance advice may be tightly coupled with an instrument used to accomplish the credit (e.g., information printed in a memo field on a check or draft, or information included in a field in an electronic funds transfer file transmitted over a network linking financial institutions), or it may be somewhat decoupled from the credit, such as a paper document delivered to a payee, separate from a credit, or an electronic file transmitted directly to the payee separate from a credit. Remittance advice typically includes at least information identifying a payor, information identifying the payor's account with the payee, and a payment amount.
A managed payee is a payee about whom a service provider has information that enables remittance to that payee to be handled in some improved/optimal fashion. The information typically includes one or more account schemes for improved reliability of Accounts Receivable posting at the managed payee, account ranges for remittance center identification, other information for remittance center identification, payee preferred credit form (e.g., paper or electronic, specific syntax), payee preferred remittance advice form (e.g., paper or electronic, specific syntax), and electronic links for delivery of electronic credits and/or electronic remittance advice.
Managed payee information, collected by a service provider from managed payees and/or other sources, is typically stored in a managed payee database. A managed payee database includes information identifying each managed payee known to a service provider, along with the information collected about each managed payee.
An electronic payee is a managed payee about whom a service provider maintains information enabling remittance to be issued electronically. An unmanaged payee is a payee about whom a service provider does not maintain information which aids in the handling of remittance. A merchant is a payee that issues bills for services rendered or goods purchased. Thus, a merchant is a special class of payee, a payee that issues bills. A merchant can be an unmanaged merchant, a managed merchant, or an electronic merchant (these terms are parallel in concept to unmanaged payee, managed payee, and electronic payee, respectively, as defined above)
For many service providers, payment processing dictates the form of remittance issued, i.e. electronic or paper. Some service providers use payment processing to determine a form of remittance based solely upon a status of a payee as a managed payee, with remittance issued in accordance with a managed payee's wishes. Thus, during payment processing, such a service provider determines if a payee identified in a payment request is a managed payee (or managed merchant). If so, information stored in a managed payee database is retrieved and remittance is issued in accordance with the stored information. If the retrieved information indicates that remittance should be issued electronically, the remittance is issued accordingly. And, if the retrieved information indicates that remittance should be issued on paper (check or draft), the remittance is likewise issued accordingly.
If a payee is not determined to be a managed payee, remittance will typically be issued on paper. In these cases, some service providers automatically issue a check drawn on a demand deposit account associated with the payor, typically known as a draft, as the form of remittance. A draft is a special class of check, one prepared by an entity other than an account holder of the account upon which the draft is drawn. Still other payment service providers perform risk processing to determine whether paper remittance will be a corporate check, drawn on a demand deposit account associated with the service provider, or a draft.
In risk processing, a payment request is evaluated against a set of rules that determines whether the credit can be issued “at risk” to the electronic payment service provider. Risk processing can be performed, as desired by particular service providers, in association with payments to unmanaged payees and/or managed payees, including both electronic and non-electronic managed payees. Rules include payment amount, payment velocity, and aggregate payment amount limits. An “at risk” credit is a credit from an account belonging to a service provider. Risk processing in only performed in those instances where a service provider is not assured of receiving funds in at least an amount of a payment made on behalf of a payor. If a determination is made that a payment will not be issued “at risk”, payment is made by a draft drawn on a payor's demand deposit account prepared by a service provider.
A service provider can be assured of receiving funds in a “good funds” model of payment processing. In a good funds model, an electronic payment service provider performs a debit authorization against a payor's demand deposit account before issuance of a credit. That is, an electronic payment service provider first assures that funds from a payor's account are available before a credit is issued on behalf of that payor. If funds are not available, the credit is not issued. Some authorizations are performed asynchronously (in batch mode), while others are performed in real-time (e.g., ATM/POS debiting).
A service provider can also be assured of receiving funds in a “guaranteed funds” model of payment processing. In a guaranteed funds model, an entity other than a service provider commits to reimburse the service provider for any credits issued for which an associated debiting of a payor's demand deposit account fails. The guaranteeing entity is typically the payee, although it may be another entity such as a consumer service provider, to be discussed further below, or a financial institution at which the payor's demand deposit account is maintained. Other forms of risk processing will be described further below.
For other service providers, a status of a payee as a managed payee is but one factor considered in payment processing to determine a form of remittance. That is, payment is not automatically made in accordance with a form of payment preferred by a managed payee. Some service providers perform risk processing to determine if an “at risk” credit will be issued.
Still other service providers perform account scheming to determine a form of payment. In account scheming, if an account number included in a payment request does not match a known account scheme utilized by the payee, payment is made by paper. Yet other service providers perform both risk processing and account scheming for electronic payees to determine a form of payment.
Typically, a service provider has five mechanisms to complete payment to a payee on behalf of a payor. As discussed above, selection of a mechanism to complete payment is often made during payment processing. The first is ACH-ACH payment, which is all electronic, in which a service provider transmits both the credit portion and the remittance advice portion of remittance onto the ACH network for delivery. The second is ACH-Direct Send payment, which is also all electronic, in which a service provider transmits the credit portion onto the ACH network, and transmits the remittance advice portion directly to a payee via a network different than the ACH. Alternatively, in some ACH-Direct Send payments, remittance advice is delivered to a payee in hard copy. The third is Third Party payment, which is also all electronic, in which a service provider transmits both the credit portion and the remittance advice portion on to a third party remittance network for delivery. The fourth is Corporate Check payment, which is paper, in which a service provider delivers a check to a payee, the check being drawn on a demand deposit account belonging to the service provider. Remittance advice is printed upon the corporate check, or included therewith. The fifth is Draft payment, which also is paper, in which a service provider delivers a draft to a payee, the draft being drawn on a demand deposit account belonging to a payee and having remittance advice printed thereon, or included therewith. Consolidated payments can be made utilizing any payment mechanism other than draft. In consolidated payment a service provider makes payment to a single payee on behalf of multiple payors utilizing a single credit. The remittance advice associated with a consolidated payment identifies each payor in association with each payment amount.
An electronic biller is a biller that presents at least a subset of its bills, for at least a subset of its customers, electronically, either directly or through a biller service provider (BSP). A BSP is an entity that electronically presents bills to customers of an electronic biller on behalf of the electronic biller. A BSP can also be an electronic payment service provider. Such service providers are known as electronic billing and payment (EBP) service providers. Electronic bill presentment can be via any one of several electronic user interfaces, including Web-based interfaces, ATM-based interfaces, PC application-based interfaces, PDA-based interfaces, automated telephone system-based interfaces, mobile phone-based interfaces, and television set-top box-based interfaces.
Some service providers only make payments to a finite set of managed payees. These managed payees may or may not be electronic billers. Such payment service providers are said to offer a “closed” electronic payment service.
Still other service providers make payments to any payee, as long as the service provider knows the payee's name and address, typically obtained from a payor. Such service providers are said to offer an “open”, or “pay anyone”, electronic payment service. Of course, a payment to a payee that is not an electronic payee generally has to be a paper (check, draft, or other instrument) payment. Alternatively, the service provider may extend an invitation to the non-electronic payee to join its community of electronic managed payees, holding the payment until the payee joins, after which payment is released electronically. If the payee does not join, payment is either released as paper or returned.
The services offered by electronic payment service providers and EBP service providers have become widely accepted. Millions of bills are electronically presented to subscribers each month, and millions of payments are completed on behalf of subscribers each month. Many subscribers pay all of their bills and other obligations utilizing an electronic payment service provider or an EBP service provider. Thus, a service provider has become a central point of bill payment activity for these subscribers.
As will be appreciated by one of ordinary skill in the art, electronic funds transfer, whether viewed from a debit perspective or a credit perspective, is the most efficient form of funds transfer, both in terms of cost and speed. The costs associated with paper funds transfer, i.e., check or draft, include production, delivery, and handling costs. Electronic funds transfer does not have the same costs associated with paper funds transfer. Actual funds movement in paper funds transfer takes a longer time than in electronic funds transfer. Because of the efficiencies of electronic funds transfer, service providers and payees each typically prefer electronic funds transfer to paper funds transfer.
Payment by draft, to overcome risk, obviously is not as efficient as electronic funds transfer. Good funds risk processing requires that a service provider have a relationship with a financial institution which maintains a payor's demand deposit account. Thus, the good funds model of risk processing, through which funds preferably move electronically, is only useful in a limited number of instances, those in which a service provider has a relationship with a payor's financial institution. Guaranteed funds risk processing requires that a service provider have a relationship with an entity that agrees to take on any risk incurred by the service provider, typically a payee. Thus, the guaranteed funds model of risk processing, also through which funds preferably move electronically, is also only useful in a limited number of instances, those in which a service provider is indemnified by a party other than the payor.
In an attempt to overcome the deficiencies of drafts, good funds risk processing, and guaranteed funds risk processing, a new model of risk processing has recently been proposed. This new model is known as the debit-hold-credit model of risk processing. In this model, an electronic funds transfer debit against a payor's demand deposit account is transmitted via the ACH network to a payor's financial institution, then, after a predetermined amount of time has passed, and no negative results associated with the debit are received, an electronic funds transfer credit in favor of a payee's demand deposit account is transmitted onto the ACH network.
Limitations of the ACH network constrain how rapidly debits and credits can be accomplished. Currently, all interactions with the Federal Reserve System are accomplished through batch file transfers, after which individual requests are propagated from the Federal Reserve System to financial institutions through further batch file transfers. Thus, funds are not posted to accounts until at least the day after requests are initiated.
The ACH network is a “negative confirmation” network. That is, an originating entity never receives positive confirmation that a debit or credit request has been successfully completed. Rather, the originating entity only receives an “exception” when a debit or credit fails. A very high percentage (90+%) of exceptions are received within seventy-two hours. Thus a three-day hold period is typically utilized in the debit-hold-credit method. However, a risk still remains that some exceptions could be received after the three-day hold period.
FIG. 1 is a transition diagram that shows the sequence of payment request, response, funds posting, and associated information flows in the context of a service provider that is completing both debits and credits electronically through the ACH network utilizing the debit-hold-credit model. In the example of FIG. 1 a three-day hold period is assumed. Also in FIG. 1, the credit to the payee is transmitted via the ACH network, and the remittance advice is transmitted directly to the payee. However, the credit, as well as the remittance advice, could be transmitted via a third party network. Also, the remittance advice could be transmitted via the ACH network.
In FIG. 1 axis 101 represents a payor, axis 103 represents a financial institution which maintains a DDA (axis 102) associated with the payor 101. Also, a service provider is represented by axis 104, a service provider DDA is represented by axis 106. The service provider DDA 106 is maintained at a financial institution 105. Axis 110 represents a payee, and axis 109 represents the payee's DDA maintained at a financial institution represented by axis 108.
On day 1 the service provider 104 receives a payment request from or on behalf of payor 101, communication 107. On this day the service provider 104 begins payment processing. It will be recognized that for future-dated payment requests payment processing does not start on the day the payment request is received. The service provider 104 transmits an electronic funds transfer file containing a debit instruction to debit the payor's account 102 in favor of the service provider account 106 via the ACH network, communication 111. This transmission could be directly to a Federal Reserve Bank, represented by axis 199, or through the service provider financial institution 105. The Federal Reserve Bank 199 then forwards the debit instruction to the payor's financial institution 103, communication 112.
In this example, on day 2 funds move from the payor's account 102 at the payor's financial institution 103 to the service provider's account 106 at the service provider's financial institution 105, shown at detail 113. If funds are not available in the payor's account 102 an exception would instead be delivered to the service provider 104, typically by day 4, which is within →72 hours of transmission of the electronic funds transfer file.
After the three-day hold period has elapsed, on day 4, the service provider 104 transmits an electronic funds transfer file containing a credit instruction to credit the payee's account 109 from the service provider account 106 via the ACH network, communication 114. This transmission could be directly to the Federal Reserve Bank 199, or via the service provider financial institution 105. The Federal Reserve Bank 199 then forwards the credit instruction to the payee's financial institution 108, communication 115. On day 5 funds move from the service provider's account 106 at the service provider's financial institution 105 to the payee's account 109 at the payee's financial institution 108, detail 116. Also on day 5, the service provider 104 directly delivers remittance advice to the payee 110, communication 117. Alternatively, remittance advice could be delivered on day 4, in anticipation of the funds movement on day 5.
This model shows a total elapsed time from initiation of payment processing to deposit of funds in the payee's account of five (business) days. This five days is close to the time it takes to pay a payee utilizing a draft. Thus, while this risk processing model utilizes electronic funds transfer, it does not markedly, if at all, improve the speed over which funds move in paper funds transfer.
Accordingly, a need exists for a technique of providing an electronic payment service which accelerates the time to payment over existing techniques, yet subjects no more risk to a service provider than the existing techniques.
Some service providers have multiple methods to mitigate risk available. However, these service providers do not choose between the methods.
Implementation of a risk processing method, and thus form of payment, is dependent upon only one of several factors. In one factor, a consumer service provider with which a payor is associated determines the method of risk processing. Another factor is a payment product utilized by a payor. Examples of payment products include person-to-person payment services and business-to-business payment services. Individual payment products are each associated with a single risk processing method. Still another factor is a location of a payor's DDA. That is, a service provider has a good funds relationship with a particular payor's financial institution that enables the service provider to utilize good funds processing on all payments made on behalf of that payor. Yet another factor is the identity of a payee. That is, a service provider has a guaranteed funds relationship with a particular payee that enables the service provider to utilize guaranteed funds processing on all payments to that payee. As will be recognized by one of ordinary skill in the art, there are different costs, times to payment (speed), and risk levels associated with various risk processing models. Current electronic payment service do not differential between cost, speed, and/or risk in payment processing.
Accordingly, a need exists for a technique of providing an electronic payment service in which a method of payment processing is selected based upon one or more of the variables of cost, time to payment, and risk level.